Introduction: Are Shortages of U.S. Technical Workers Being Deliberately
Created By Government Market Interference?

Long term labor shortages do not
happen naturally in market economies.

That is not to say that they don't exist. They are created when employers or
government agencies tamper with the natural functioning of the wage mechanism.

To get an idea of expert opinion on this topic, consider the 1990 testimony
of Dr. Michael S. Teitelbaum, later to become Vice-Chairman of the U.S.
Commission on Immigration Reform and considered by many, the foremost expert on
the migration of the highly skilled:

"...the very phrase itself, "labor shortage'' provokes puzzlement
or amazement among most informed analysts of U.S. labor markets. "

"[To attract] workers, the employer may have to increase his wage offer.
... So when you hear an employer saying he needs immigrants to fill a "labor
shortage'', remember what you are hearing: a cry for a labor subsidy to allow
the employer to avoid the normal functioning of the labor market."

-1990 Congressional Testimony of Dr. Michael S.
Teitelbaum

The U.S. provides employers with access to the
world's most productive workforce of more than 100 million individuals; an
excess of talent and manpower far beyond the needs of any employer or field. In
the absence of interference with the natural wage mechanism, salary offers rise
to the level which gives an employer, access to the share of labor he or she
needs. Organizations which lack the ability or will to compete in this dynamic
market are replaced by healthier or more generous employers.

In 1998 we are again hearing that America's colleges and universities are
neither attracting nor producing enough U.S. knowledge workers in the form of
scientists, engineers, programmers and information workers to meet the needs of
business and universities. In the case of programmers and information workers,
the claim is that this is far more serious than a spot shortage lasting the few
months needed to raise wages and train new workers. Instead, some industry
advocates have termed this a long term crisis which threatens the health of the
U.S. economy.

Economists tend to dismiss such analysis out of hand as the alarmism of
individuals who have, for whatever reason, failed to grasp the most basic of
economic principles. While the claims of ruin may safely be discarded as
political theatrics, the domestic shortage claims deserve more scrutiny and need
not be as far fetched as some market experts might assume. Most economists would
agree that if previous 'employer relief' efforts have been left in place, a
domestic labor shortage could well result.

Dr. Teitelbaum put this mainstay of market analysis in its simplest terms:

"[Proposed] provisions to rectify a 'labor shortage' have the
perverse effect of assuring continuation of such 'shortages'"

-1990 Congressional Testimony of Dr. Michael S.
Teitelbaum

Thus, if industry and universities are in fact
facing a long term domestic labor shortage, the most likely explanation is that
it is due to previous wage tampering in the skilled labor markets related to
knowledge workers.

The natural wage rate in the U.S. economy is set by a simple right of first
refusal (called labor certification). U.S. employers are free to hire any
resident whether immigrant or citizen without regard to citizenship. If no
qualified resident is available, they may then sponsor (at some cost to
themselves) a non-resident who wishes to gain a permanent visa.

As long as this mechanism is not abused, standards of living are not lowered
by depressed wages in other countries, employers invest in domestic training,
and enterprising institutions make tidy profits.

In such a market economy, employers signal a need for domestic talent through
improving wages, benefits and terms of employment. They signal a desire to avoid
the high prices for domestic talent by turning to government in search of visas.
Domestic workers respond positively to employers who choose the first route by
leaving those who opt for the latter.

As workers are expected to bear the losses when demand sags, it is generally
agreed that they are entitled to reap the benefits when markets tighten. When
employers use coded language like a need for 'wage stability' they are
indicating to potential employees that they favor a climate where workers assume
the risks from market forces, but not the full returns. It comes as a surprise
to few that such employers may encounter more difficulty attracting domestic
talent than employers who are unafraid to compete at the natural wage rate.

The purpose of this article is to argue that employers in government,
universities, and industry, have recently lobbied (1975-1976, 1986-1990) for the
purpose of avoiding and depressing the natural market price for U.S. knowledge
workers. By creating a nearly identical panic to the one today, this group of
employers motivated changes in immigration law and obtained government training
funds to create an artificial demand for technical skills.

The effect of deteriorating terms of employment and depressed wages has had a
steady cumulative effect on the relative attractiveness of advanced technical
training for the best U.S. students

While, according to National Science Foundation (NSF) analysts, the original
concern was depressing U.S. PhD level salaries in science and engineering, the
market flooding which resulted was far broader as the mechanisms (such as H1-B
visas and the so-called "Einstein Exemption" from labor certification for
priority workers) were quickly utilized by employers in neighboring fields (e.g.
software design and securities analysis).

For the sake of simplicity however, this article will concentrate on the
market from which this panic spread: natural scientists and engineers
(NS&Es). Those interested in other fields can easily track down how the
market interventions described here relate to their fields of interest.

The 1990s and The Flooded Market for Scientists and Engineers

Among serious analysts, who have examined the surge in Science and
Engineering (S&E) PhD production, there is little question but that

The market has been glutted since the beginning of the 1990s.

The magnitude of the surge in production emanates from the temporary visa
sector with smaller increases and fluctuations among immigrants and citizens.

This second observation shows up in the analysis of those
who have studied the data on both the student and post-doctoral sectors:

"...foreign [science and engineering] students account for nearly
all of the increase in the number of doctorates awarded in these fields since
that figure began to rise in the mid 1980s. Clearly, immigration is a critical
element in formulating policy for the science and engineering labor market."

"...the big growth over the last 15 years in postdoctoral
education in America has been among international students. In science and
engineering, the number of domestic postdoctoral students has stayed
relatively constant, going from roughly 13,500 in 1977 to 15,500 in 1991. Over
that same period the number of international postdoctoral students in American
universities has nearly tripled, from about 6,000 to 16,000. Foreign nationals
now comprise the majority of all science and engineering postdocs in the
United States. Again, these numbers are probably soft, but my guess is that
the fraction of postdocs in America who are international students may be even
higher than these numbers indicate."

-Steven B. Sample, President, University of Southern California,
"Postdoctoral Education in America", a Speech to the AAU, September 23,
1993

"Foreign [science and engineering] students are in fact, at the
heart of both the "glut" and its beneficial effects for the United States. ...
First, the facts: In 1990, over 50 percent of the engineering Ph.D. s in the
United States were awarded to foreign students. The figures are almost as high
in mathematics, physics, chemistry, and computer science. More than eight out
of every ten foreign graduate students in the U.S. is in a S&E program,
with over half of these students coming from just four countries: Taiwan,
China, Korea, and India .... As increasing numbers of foreign students have
arrived, native enrollments have held constant over the last 30 years at
around 13,000 annually."

There is also agreement among these analysts on a third
point: this saturation of the market is allowing scientific employers
unprecedented opportunities to save on labor costs by decreasing wages, benefits
and commitments:

"By keeping wages low and by attracting a broader pool of talent,
immigration produces benefits for the universities, research institutes, and
corporations that employ scientists and engineers."

"There is a suspicion that international postdocs are in many
cases a form of slave labor within the American research establishment. ...

There are some very touchy issues surrounding the question of international
postdoctoral students. We can certainly identify some advantages to having
these students on our campuses....international postdoctoral students provide
a good deal of low-cost talent for our universities. They often serve as
teachers in our research laboratories by supervising both doctoral and masters
students."

-Steven B. Sample, President, University of Southern California,
"Postdoctoral Education in America", a Speech to the AAU, September 23,
1993

"[The preponderance of foreign students in S&E programs] means
that scientist and engineer gluts, and consequent gripes against universities,
can be expected to continue.

But why should we take this as a problem? As these Ph.D.s eventually take
jobs downstream, their expertise becomes available to institutions and firms
that can benefit from superior talent and education at unexpectedly affordable
prices. ... This should be a matter for satisfaction, not lament."

"There is a crisis of overproduction of PhDs and underconsumption of
scholarship. To save money, schools rely increasingly on "gypsy scholars"
drawn from the reserve army of unemployed PhDs. They are hired on short-term
contracts to teach but are not on the tenure track and are denied health care
and other benefits.

Twenty years ago, 25 percent of all faculty members were part time. Today
42 percent are. For example, the Chronicle of Higher Education reports that in
1992 the California State University at Hayward had 407 tenured or
tenure-track professors and 142 other lecturers, and by 1995 the numbers were
373 and 330 respectively."

-George F. Will, "Labor Turbulence Goes to
College"

The quotes in the Wage
Box on the opposite page give further indications of how this process is
viewed.

As can be inferred from the above, most analysts agree that this depression
of the S&E labor market is highly advantageous for employers. However, the
question of whether the effects of a flooded market are good or bad for the
nation is not at all clear and is frequently contested between even the most
knowledgeable of analysts.

Even more importantly, the conclusion that the saturation stems from the
temporary visa sector leaves a puzzle. Temporary visas for graduate level study
are officially intended for international student exchange and are technically
only available for those students who can attest that they have no intention of
immigrating. Additionally, the number of permanent visas for employment based
immigration of skilled workers has historically been small (27,000 per year) and
is limited to occupations in which no qualified immigrants or citizens are
available or interested in the positions offered. Thus, if the dramatic
increases in Ph.D. growth are coming from temporary non-immigrant visa programs,
why should the market for permanent positions be affected?

Threats of Shortage and the Immigration Act of 1990

According to the
National Academy of Sciences, the increase in production was accompanied by a
surge in immigration. This increase was thought to have been the result of the
Immigration Act of 1990 which ironically responded to NSF predictions of
shortages of scientists and engineers:

"In 1992, [the number of immigrant scientists and engineers]
jumped to nearly 23,000 compared with 11,000 - 12,000 a year during the 1980s
(NSB, 1993:82). More than half were from East Asia, and two-thirds to three
fourths have been engineers. The increase probably resulted from the
Immigration Act of 1990, which was passed in response to predictions by NSF
and others in the late 1980s that a shortage of scientists and engineers was
impending."

-"Reshaping the Graduate Education of Scientists and Engineers", National
Academy of Science, COSEPUP subcommittee, 1995

Michael Teitelbaum, vice-chairman of the U.S. Commission on Immigration
Reform and Officer of the Sloan Foundations concurred stating:

"There is no shortage, there is a surplus.

Claims that there was a dearth [of scientists and engineers] began a decade
ago, when Erich Bloch, then-Director of the National Science Foundation,
claimed that unless action was taken, there would be a cumulative shortfall of
675,000 scientists and engineers over the next two decades.

Congress poured in additional money. The National Science Foundation
received tens of millions of dollars for science and engineering education.
And in 1990, Congress nearly tripled the number of permanent visas for highly
skilled immigrants.

Dramatic growth ensued. The number of science and engineering doctorates
reached record levels."

-Michael S. Teitelbaum, "Too Many Engineers, Too Few Jobs", The New York
Times, March 19, 1996

While immigration of academicians and scientists to the United States has
been a traditional feature of the U.S. research community, the current levels
appear to be without precedent. Consider the graph below which contrasts the
in-migration of professors over the first 4 years following the 1992
implementation date of the 1990 immigration act, with the migration levels over
16 years during the 1960s (the so called era of university expansion) and 1970s
(until the passage of the Eilberg Amendment which first changed the structure of
university immigration).

The NSF sponsored shortage initiatives emanated from a single division within
the foundation. This insular unit was known as the Policy Research and Analysis
division (PRA) and, together with its controversial director Peter House,
maintained an especially close relationship with the then NSF director Erich
Bloch.

In the mid to late 1980s, the NSF began circulating an unorthodox demographic
study projecting scarcities of more than half a million scientists and
engineers:

"But panic about coming shortages soared in 1989, when Peter
House, the chief of policy analysis at the National Science Foundation,
circulated a paper -never published- that calculated a "shortfall" of nearly
700,000 bachelor degrees in science and engineering between 1986 and 2011. ...
the shortage alarms were strongly reinforced when a widely publicized study by
Richard Atkinson, then-president of the American Association for the
Advancement of science, warned that a shortage of several thousand new PhDs in
science and Engineering would hit the united states late in the decade"

The projections
proved so erroneous that the current NSF director, Neal Lane, has since
repudiated the projections claiming that the shortage alarm was groundless:

"[The NSF scarcity study] went on to project the Ph.D. replacement
needs would double between the years 1988 and 2006. Based on a number of
assumptions, these data were pretty widely interpreted as predictions of a
shortage, while there was really no basis to predict a shortage."

-NSF Director Neal Lane, Congressional Testimony, July 13
1995

The NSF Scarcity Projections vs. Standard Economic Methodology

The
unorthodox nature of the study stemmed from its exclusive focus on the
supply-side of the labor market. While this 'supply side economics' or
'trickle-down theory' dominated the conservative political arena during the era
of Reaganomics, the movement was regarded by academicians as 'voodoo' economics
and was universally derided by even the most conservative economics researchers.

Economist Paul Krugman explained the origins of this movement in his book
Peddling Prosperity: Economic Sense and Nonsense in the age of Diminished
Expectations:

"...not only is there no major [university economics] department
that is supply side in orientation; there is no economist whom one might call
a supply-sider at any major department.

Where, then, did the supply-siders come from? The answer is that they came
from the fringes of economics: from journalism, from congressional staff
positions, from consulting firms; ... Above all, the cutting edge of the
supply-side movement consisted of the group that Robert Bartley assembled to
preach on the editorial page of The Wall Street Journal.

...Supply-siders do not fundamentally rely on empirical evidence to back
their view; they believe that their ideas are necessarily, logically, right,
and that the academic majority is wrong not only about parameters but about
principles.

Or, to put it another way, the supply-siders are cranks."

Not
surprisingly, the NSF supply-side 'scarcity' study was not viewed kindly by
serious analysts. In fact, one of the great mysteries of this era was why the
NSF, which had hired talented applied economists, would opt for a 'crank'
methodology derided by skilled analysts. In the words of Howard Wolpe who lead
the house investigation into the NSF irregularities:

"The NSF study projected a shortfall of 675,000 scientists and
engineers without considering the future demand for such individuals in the
marketplace. It simply observed a decline in the number of 22-year-olds and
projected that this demographic trend would result in a huge shortfall. This
could be termed the supply-side theory of labor market analysis. But making
labor market projections without considering the demand side of the equation
doesn't pass the laugh test with experts in the field."

-Howard Wolpe

Authors David Berliner and Bruce Biddle,
concurred in their book "The Manufactured Crisis":

"In 1985 the National Science Foundation (NSF), no less, began an
energetic campaign to sell the myth [of a shortage of scientists and
engineers], basing its actions on a seriously flawed study that had been
conducted by one of its own staff members. The study in question argued that
supplies of scientists and engineers would shortly decline in America and that
this meant we had to increase production of people with these skills. This
thesis was dubious at best, but, worse, the study made no estimates of
job-market demands for scientists and engineers. Thus, the researcher
completely forgot to worry about whether these people were likely to find
jobs."

-David Berliner and Bruce Biddle, "The Manufactured Crisis", pg.
96

The Supply Side Appeal

During the period in which the NSF was advancing
the shortfall hypothesis, there was tremendous political support for believing
demand consideration could be de-emphasized under the hypothesis that "supply
creates its own demand" (a centuries old theory, sometimes known as 'Say's
Law'). Despite the opposition of serious labor analysts, conservative
non-academic institutions like the Hudson Institute and the Wall Street Journal
took up the charge in promoting 'shortage alleviation' in the lead up to the
Immigration Act of 1990. The appeals were agressively nationalistic and at times
favored rhetoric above analysis:

"[Let us] look for people with particular criteria, particular
merit, higher education. I mean, this is a buyer's market, American
immigration. We can pick from tens of millions of people around the world to
get the brightest best educated people --educated on somebody else's nickel,
by the way-- that the world has."

-Ben Wattenberg of the Hudson Institute, testifying in support of the
Immigration Act of 1990, pg. 299

"The U.S. has the best university system in the world, yet about
half of our technical graduate school slots are filled by foreigners. As long
as we don't train enough scientists, engineers or software designers
ourselves, immigration is a saving grace. ... Come to think of it, with jobs
available why have a quota at all? ... Our view is, borders should be open."

-Wall Street Journal Editorial, Thursday February 1,
1990

"As long as the teachers' unions prevent education reform, the
U.S. needs to import scientists and engineers. ... Whatever happened to
competitiveness?"

-Wall Street Journal Editorial, Friday March 16,
1990

This represented the continuation of the lobbying for
the importation of large contingents of foreign laborers which had begun during
the previous administration:

"Two years ago this day, ... we wrote "If Washington still wants
to 'do something' about immigration, we propose a five-word constitutional
amendment: There shall be open borders".... the Reagan supply-side idea has
shown that human resources are the greatest national assets, if only people
are freed of burdensome regulation ..."

-Wall Street Journal Editorial, Thursday July 3,
1986

The Analysts Respond

In sharpest contrast, the traditional labor market
experts called to testify during hearings on the Immigration Act of 1990
appeared unanimous that no shortage existed and warned of ulterior motives on
the part of government and employers:

"Now, my first concern is the premise upon which some of these
provisions rest; namely, that we have a labor shortage that cannot be
corrected by normal market forces. This is just not true. The United States
has an immense and talented labor force of 125 million persons, people with a
vast range and variety of skill and ability ... The idea of bringing in
[immigrants] for a particular job is ludicrous. It results in people lying and
government agencies being asked to certify that shortages exist without any
real knowledge of it. We should not do it."

-Malcolm Lovell Jr., Director of the Institute for Labor and Management at
George Washington University in testimony concerning the Immigration Act of
1990.

The quotes in the Predictions
Box on the right hand side of the opposite page, are representative of
employers's, economists' and demographers' responses to the 1990 act.

While, the economists and demographers failed to stop the immigration act in
1990, vindication came two years later when a glut appeared where shortage had
been predicted. The House of Representatives held hearings which revealed the
shortage study to be the product of a maverick initiative within NSF"

"In 1985, the Policy and Research Analysis Division (PRA) of the
National Science Foundation began to work on a demographically based study
projecting a "shortfall" of 692,000 bachelor's degrees in natural science and
engineering. The study was a deceptively simple one. It held that as the
participation rate of 22-year-olds in natural science and engineering degrees
had been stable for decades and the number of 22-year-olds was dropping, there
would be a shortfall of degrees.

In 1986, the then-director of the Foundation took that number to Congress
and started the shortfall ball rolling in his FY 1987 budget testimony. In
1987 PRA furthered it by publishing and distributing to over a thousand people
a "draft" of the study. It had never been peer reviewed or given any other
type of serious methodological review before its release. Because of the
confusing and interchangeable use of the words "shortfall," "shortage," and
"scarcity," and discussions by Foundation officials of supply and demand, many
members of congress, academic institutions, the media and the public became
convinced fewer degrees meant that a real "shortage" of workers was looming
and government intervention in the form of increased financial support for
science and engineering education was necessary.

At least 10 other drafts were produced and distributed between 1988-90 with
varying numbers and years of shortfall. They became known as NSF's
"underground literature" with different people possessing different drafts.
PRA settled on a constant number of 675,000, but, strangely enough, the years
charted changed from report to report without any change in the number. This
was relatively easy to do, as the report contained no statement of
methodology, data points, lists of assumptions or bibliography.

From the very beginning, labor economists and statisticians, including
those inside the Foundation, scoffed at the methodology as seriously flawed,
pointing out that new graduates were only one part of supply -- or as one
critic said, "The world is not run or determined by 22-year-olds" -- that it
was not useful to look at supply without looking at demand, and that the
market was very flexible in adjusting to demand. The Foundation's statistical
unit found that the "stable" participation rate wasn't stable. However, the
study, through its repeated use in speeches and testimony by the Foundation's
director, university administrators, members of Congress, and countless
articles and news stories, took on a life of its own that was slowed only when
the engineering community publicly attacked it in late 1990. I am going to put
a few examples of its use into the record, which include a finding of a
shortage of 675,000 scientists and engineers in the Excellence in Mathematics,
Science and Engineering Act of 1990 passed by this Committee. Even today, the
study's echoes still are heard in news stories and halls of Capitol Hill.
Senator Danforth cited it in discussing the NASA authorization bill last year;
Fortune Magazine referred to it last month."

-Rep. Howard Wolpe's Opening Statement as Chairman of the Hearing Before
The Subcommittee on Investigations and Oversight of the Committee on Science,
Space, and Technology, U.S. House of Representatives, One Hundred Second
Congress, April 8, 1992

This calls into question what the real
objectives of the NSF and PRA were at the time.

In order to understand why the NSF was predicting shortages and shortfalls of
scientists and engineers it is important to understand the thinking of the NSF
division which promoted the scarcity hypothesis.

The NSF's Real Shortage Study

By excerpting and dissecting a previously
unknown NSF shortage study, I will argue here that those accusing the NSF and
PRA of incompetence were inaccurate in their accusations. Further, it is
asserted that the individual analysts and economists within PRA were less venal
and more honest than the critics imagine. While the disturbing tone of this
internal document leaves little doubt about the surrounding atmosphere in the
PRA at that time, a good policy analyst or applied economist is called upon to
perform his or her craft as a 'hired gun' relative to what economists call an
'objective function', which is supplied externally. If fault lies with these
objectives, then it must be recognized that this is the responsibility of the
project's directors and not the analysts. The analysts in turn are in turn
responsible for any defects in the technical analysis relative to the stated
objectives.

The argument will proceed by demonstrating that the Reagan-era NSF and PRA
were far from incompetent and that the flooded market might be considered more
success than failure by their standards. The PRA analysts included talented
applied economists, who had analyzed in detail much of the demand side and
incentive structure of the S&E labor market. In fact, the accusation by
Berliner and Biddle above that the widely circulated scarcity study "made no
estimates of job-market demands" does not mean the analysts "completely forgot
to worry about whether these people were likely to find jobs." .

What appears to have happened instead is that the researchers in the group
had already performed a market study of the demand projections before the
infamous scarcity study was circulated. This original study explicitly projected
the salary increases which would be needed to eliminate the so-called 'shortage'
and found that the natural wage level would nearly double the 1982 salary level.

As one might expect of economists working on behalf of NSF/PRA, the analysts
sought to publish these intriguing results, but according to government sources,
the PRA director chose instead to suppress their publication. The study was then
circulated in a controlled manner to various individuals at NSF as an 'internal
PRA analysis', and to select representatives of other interested parties.

According to sources within NSF, the study may have revealed too much about
the political motives of the division chief and was thus perceived to threaten
the PRA's political agenda. The document shows that the PRA was studying past
wage trends in order to project the future salaries of Ph.D. level researchers
and clearly reveals that the prospect of rising wages as the 'pessimistic
scenario' motivating the later 'shortage study':

To begin we support the above allegation by quoting directly from the market
study:

Future Scarcities of NS&E PhD's

The major reason for studying the past is to monitor current and future
developments that will change key relationships between new graduates and pay
rates. It is almost always advantageous to know about impending future changes
in advance. Policy makers can act on advance information to alter changes in
advantageous ways."

In order to quantify the 'scarcity', the PRA
then used past salary data to project what the natural market salary levels
would be:

"These salary data show that real PhD-level pay began to rise
after 1982, moving from $52,000 to $64,000 in 1987 (measured in 1984 dollars).
One set of salary projections show that real pay will reach $75,000 in 1996
and approach $100,000 shortly beyond the year 2000."

Thus the PRA
directly conceived of the scarcity as a wage issue as the following paragraph
makes clear:

"The Issue of Foreign Citizens in U.S. Doctoral
Programs

This pessimistic scenario of rising PhD scarcities and rapidly rising
salaries serves to highlight some of the key issues that will be faced in the
U.S. over the next several decades. First, the cost of decreasing U.S.
reliance on NS&E PhD's earned by foreign citizens appears to be high. Not
only will the salary costs of PhD-level researchers and teachers rise
substantially, but also the scarce talent lured into the PhD-level NS&E
career paths will not be available for other uses."

This
indicates that despite external calls for more talented Americans to enter
scientific careers, internally members of NSF were actually worried about the
wisdom of 'luring' talented U.S. students into the scientific labor market.

This lead directly to the idea of encouraging foreign scientists with
fellowships and green cards for their effects on wages and costs:

"[Thus, to] the extent that increases in foreign student
enrollments in doctoral programs decline or turn negative for reasons other
than state or national policies it may be in the national interest to actively
encourage foreign students. One way to do this is to ensure that foreign
students have equal access to graduate student support funds provided through
federal agencies. Another approach is to grant permanent resident status or
immigrant status to foreign students successfully completing PhD degrees at
U.S. institutions."

The effect of such a program was clear to the
analysts at PRA:

"A growing influx of foreign PhD's into U.S. labor markets will
hold down the level of PhD salaries to the extent that foreign students are
attracted to U.S. doctoral programs as a way of immigrating to the U.S.. A
related point is that for this group the PhD salary premium is much higher
[than it is for Americans], because it is based on BS-level pay in students'
home nations versus PhD-level pay in the U.S. . "

Further, according to PRA analysis, while Ph.D.s bundled with immigration
opportunities represent large bonuses to talented foreign students, the PhD
(bundled with immigration depressed salaries) actually represent a losing
proposition for many of the best U.S. scholars:

"[If] doctoral studies are failing to appeal to a large (or
growing) percentage of the best citizen baccalaureates, then a key issue is
pay. The relatively modest salary premium for acquiring an NS&E PhD may be
too low to attract a number of able potential graduate students. A number of
these will select alternative career paths outside of NS&E, by choosing to
acquire a "professional" degree in business or law, or by switching into
management as rapidly as possible after gaining employment in private
industry. For these baccalaureates, the effective premium for acquiring a PhD
may actually be negative. Serious attention should be given to this
interpretation."

The reason for this loss is that the true cost of
even a fully subsidized Ph.D. is determined by the indirect 'opportunity cost'
of all wages forgone during periods of study and training which may last a
decade or longer. Given that the PRA had previously concluded that the Ph.D. had
'negative' value for many of the most talented American students, the division
had to consider that students would have to be 'lured' into Science and
Engineering graduate programs. While this surely seems unnecessary and
antithetical to the principle underlying a market economy, the division was
interested in intentionally disallowing the action of the 'free market' which
would cause wages to rise. For this reason, PRA's analysis advocated that
'lures' be used to attract citizens into science and engineering careers with
the possibility of 'falling real salaries'.

From this perspective, the best 'lure' was taken to be the quickest and
cheapest: graduate fellowships and traineeships.

"Considering that a key part of the financial calculus of deciding
on graduate school or employment after earning a BS degree is the opportunity
cost of lost earnings and the immediate out-of-pocket costs of tuition and
living expenses, increased financial subsidy of doctoral students seems much
more cost effective to the nation than the free market solution of allowing
real and relative salaries of NS&E PhD's to rise. Subsidies are an
immediate lure to enter graduate studies. By comparison, the inducement of
rising salary is a distant lure, which would produce results with a
considerable time lag and would probably require the payment of a large risk
premium to compensate students for the possibility of falling real salaries
before they have completed their degrees."

Further, despite the
frequent claims that U.S. students had become disinterested in science and
engineering, the PRA was aware that the phenomena of disappearing Americans
could be explained without assuming any change in the native population's
interest or ability. When top U.S. students are viewed as ill served by PhD
training, many explanations can be given which explain the displacement
including the use of immigrant visas as a kind of cash substitute.

"...these same data can be interpreted to indicate that foreign
students are displacing U.S. students because foreign students are not
responsive to small decreases in real starting salaries for PhD's and much
more responsive to modest increases in real salaries (or that they are more
responsive to the immigration opportunities represented by openings in
graduate school than to salary signals)."

Given the contrast between
immigration seeking scholars from the developing world and American students
sacrificing first-world opportunity costs, PRA was concerned with any possible
fall off which would force universities to replace foreign scholars with
Americans causing both real and relative PhD level salaries to rise:

"What will occur if foreign student enrollments begin to lose
responsiveness to positive salary signals, or if the growth in these
enrollments begins to slow down for other reasons (e.g. if state governments
begin to cap graduate enrollments of foreign students, as California has
done)? In that case increases in doctoral enrollments and new PhD's will
become much more dependent on U.S. citizens. In exploring the future, it is
useful to consider the effect of a leveling off of PhD conferrals to foreign
citizens. We examined the scenario in which foreign PhD's in NS&E reach a
ceiling of 5,000 per year, a few years hence, so that the very large increases
in enrollment and degrees needed after the mid 1990's would have to come from
U.S. students. In addition to the rise in real salaries needed to keep pace
with BS-level salaries, relative PhD-level pay would also have to rise
starting in the mid-1990s to product the desired response. ..."

It
did not escape PRA's attention that the effect of using foreign students to
depress U.S. wages creates a feedback loop by creating more slots for
international scholars.

"To the extent that the issue is inadequate pay (as just
described), a continuation of current trends may actually exacerbate these
trends. To the extent that the best U.S. citizen baccalaureates are choosing
to avoid doctoral studies, more room will be available for qualified foreign
students."

Ironically, this is just the point made in the
introduction above by Michael Teitelbaum in his doomed attempt to inform the
shortage alleviation provisions of the Immigration act of 1990. Unfortunately,
it appears the NSF was at that time obscuring (rather than sharing) its
considerable market expertise.

Despite the claims of critics, the PRA market experts were also keenly aware
of the ability of markets to cope with supply problems. The internal analysis
pointed out that previous shortage predictions by prominent scientists were
rapidly solved by market mechanisms:

"...There have been numerous instances during the last 45 years in
which high-ranking national figures have called for national action to
increase the flow of college students into NS&E fields, either directly or
indirectly. These calls for action were often in reaction to temporary
shortages of specialists narrowly located within the broad domain of NS&E.
The shortages, however, were swiftly eradicated without major focused policy
initiatives through market forces and minor adjustments by employers..."

-Internal NSF/PRA study

The PRA analysts recognized that the
'shortage' was intrinsically an economic crisis as seen from the point of
view of the large government, university and industry employers. As all
employers were going to be experiencing the same pressure, wages would have to
rise more quickly than in other sectors to draw talent from other fields. While
allowing the tightening of the labor market would have brought women and
underrepresented minorities to science and engineering, this tightening
threatened to increase wages and decrease the spread between entry level and
senior positions (referred to here as "pay compression"):

Baring major improvements in organizational effectiveness or support
equipment for NS&Es, shortages of the "classic" economic type will develop
in the late 1990's and beyond. Fungibility of human talent will prove much
less effective in buffering short term dislocations than it has in the past
because the supply of skilled entry level people will be shrinking across the
board. In addition, large organizations will find themselves coping with
internal stress brought on by pay compression. The result will be renewed
efforts to bring higher percentages of minorities and women into NS&E
fields, relaxed attitudes towards immigration of skilled foreign nationals,
greater subsidies of higher education (per student), and higher real salaries
for skilled workers at all levels. The roots of these forecasts are already in
evidence for workers of young ages; wage rates for "fast" food establishments
have risen substantially above the minimum wage level in most large SMSA's in
the Washington D.C. - Boston urban corridor, the region with the largest
decline in young people. "

-Internal NSF/PRA analysis

If higher wages, xenophilia,
greater investment in education and increased recruitment of women, blacks and
Hispanics sounds like a progressive wish list, it should be remembered that
employers were less enthusiastic as they were the ones slated to pay the price.

"A tight labor market, when unemployment is low, may be awkward
for some employers, but it does wonders for workers, particularly
disadvantaged ones. In a tight labor market, as in World War II, women got
good blue collar jobs in factories; in tight labor markets the old and the
young are courted, racial prejudices forgotten, and employers make efforts to
improve wages and working conditions.

We should be extremely hesitant about using immigrant visas to loosen labor
markets. As we all learned in college economics, when a supply increases, its
value decreases."

-David North, Director of the Center for Labor and Migration Studies in
testimony concerning the Immigration Act of 1990.

"...a tight labor market is the best friend of the underclass. I
guess that's the way that I feel, that we should worship a tight labor market
for the underclass because it really requires employers to reach down and
train and retrain people and give them the jobs that they have."

"I believe strongly that labor shortages are wonderful, and we should never
do anything to eliminate that pressure, because it is forcing us to ask all
the right questions about education and health, antidiscrimination policy, all
the right policies are in place. In many ways, the whole idea of trying to get
our nation to full employment was exactly to get itself in a state of
perpetual concern about the readiness of our labor force. That is what tight
labor markets mean."

It is not surprising however that otherwise
heterogeneous employers saw the tight labor market as something of a common
threat.

The Three Traditional Policy-Level 'Stakeholders': Government, Universities,
and Industry

According to the president of the Association of American
Universities Robert Rosenzweig and his co-author John Vaughn (also of AAU), the
approach of a tight labor market threatened to pit employers in government,
academe and industry against each other in competition for scientists and
engineers. Rather than seeing this as the normal process of wage determination,
the AAU found the prospect alarming and began their 1990 article 'Heading Off a
Ph.D. Shortage" with the following sentence:

"Unless prompt action is taken, a sharply increased demand for
Ph.D.s in the United States will outstrip a comparatively level supply before
the turn of the century. Industry, government, and universities will be pitted
against each other in a battle for this critical human resource, and the
entire nation will pay the price -- diminished leadership and competitive
strength"

-AAU's John Vaugn and Robert Rosenzweig, "Heading Off a Ph.D. Shortage",
Issues in Science and Technology, Winter 1990-1991, pg. 67

In
fact, it is worth following the reference to "Industry, government, and
universities" because these groups were in fact not functioning as independent
competitors as much as one might expect. In fact, Erich Bloch was assembling and
heading an new organization called the "Government University Industry
Roundtable" as a 'stakeholders' organization within the National Academy of
Sciences. According to its 'Mission Statement', its purpose is

"To convene senior-most representatives from government,
universities, and industry to define and explore critical issues related to
the national science and technology agenda and its global context that are of
shared interest; to frame the next critical question stemming from current
debate and analysis; and to incubate activities of on-going value to the
stakeholders.

Despite the obvious potential for conflicts of
interest among competitive employers in pursuing "activities of on-going value
to the stakeholders", the group adopted an unapologetic elitism and was at best
tentative about its commitment to sharing its information with the public:

"This forum will be designed to facilitate candid dialogue among
participants, to foster self-implementing activities, and, where appropriate,
to carry awareness of consequences to the wider public."

Given above quotes and the fact that Erich Bloch was
heading both the GUI roundtable and the NSF, it is then important to ask whether
there is any hard evidence of a connection between the PRA division of NSF and
the GUI group of employer stakeholders. As high levels of secrecy make it
difficult to track the movements of the PRA and GUIR groups during the period
before the 1990 act, this is not trivial. However, some information is available
within the public record. The AAU comment of Rosensweig and Vaughn appears to be
an echo of excerpt found in a public GUIR report which, in a footnote, directly
references the PRA salary projections without providing a traceable citation.

"The average compensation of an academic researcher has risen
sharply in the last few years [See Footnote]. The reasons for this seem to be
the result of two important factors: First, universities have to compete with
industry for research personnel in several fields. Second, competition among
universities for top research faculty fuels wage costs. In this regard, it
should be noted that during the 1990s, wage pressures will likely continue to
intensify because of the shortage of and demand for teaching Ph.D.s,
particularly if an increase in student enrollments materializes. Growing
demand by industry for Ph.D.s, driven by the complex technological base of the
service, manufacturing, and agricultural sectors, will also fuel wage
increases.

Footnote: Between 1980 and 1988, average compensation for academic research
personnel (faculty and non-faculty) has increased by nearly 25 percent,
accounting for inflation. Source: National Science Foundation, Division of
Policy Research and Analysis."

-Report of the Government-University-Industry Research Roundtable on
'Science and Technology in the Academic Enterprise: Status, Trends, and
Issues' Chaired by Erich Bloch as Director of the National Science Foundation,
1989, pgs. 1-21 and 1-29

Further, when the PRA finally published
a book synthesizing and reworking some of their internal analysis for public
scrutiny, Both Erich Bloch and Peter House used their forwards to refer to the
GUIR as motivating much of the analysis.

"While much of the database and analysis work that PRA undertakes
is in preparation of NSF policies and plans, the databases themselves as well
as the analysis can have broader use. For instance, during the last year and a
half the Government-University-Industry Roundtable Working Group on the Future
of the University Research System has made extensive use and stimulated
further development of the data and analysis than was previously required for
NSF use. That connection led to the development of the volume that in front of
us today."

-NSF Directory Erich Bloch, pg. i

"The Capstone of [our] analyses was our contribution to a
Government-University-Industry Roundtable working group on the Research
University Enterprise, chaired by the NSF director. To aid this group in their
deliberations, PRA provided 30-year time trends (1958-1988) of all relevant
economic and personnel information related to the 3,000+ institutions of
higher education, with particular emphasis on the set of 185 research
universities."

-Peter House, pg iii-iv

Given this background, it is
worth noting how university representatives viewed market mechanisms as a means
of scarcity alleviation. According to Rosenzweig and Vaughn:

"Relying solely on market forces [to eliminate 'Ph.D. shortages']
creates two problems: The full effect of a market response would almost
certainly occur too late [for the predicted shortage of the 'mid- to late
1990s']; and there is no reason to expect that a market adjustment alone would
provide an optimal, sustainable supply. .... Furthermore, current nonacademic
market forces provide strong disincentives for college graduates to pursue
doctoral programs. Precisely those graduates whose talents and accomplishments
qualify them for doctoral programs are the job candidates most highly sought
in prevailing markets"

-AAU's John Vaughn and Robert Rosenzweig, "Heading Off a Ph.D. Shortage",
Issues in Science and Technology, Winter 1990-1991, pg. 67

The
interpretation of the above statement which would be offered by an economist is
that the prevailing markets function to provide efficient use of talented
Americans. If the universities care sufficiently about merit, they should be
expected to transfer resources from lower priorities and offer them in the form
of salaries, commitments and benefits to talented scholars.

In fact the prospect of market solution to this problem was advanced and
rejected as slow and costly in the famous shortage projection published by
Richard Atkinson in 1990:

"Market mechanisms will no doubt reduce projected shortfalls
between supply and demand, but they will be slow in coming and expensive. ...
prudence suggest, therefore, that we pursue intervention strategies to
increase the future supply of Ph.D.s ..."

-Richard Atkinson, Science Magazine, April 27, 1990, pg.
430

Years later, Atkinson gave a speech in which he asked where
his projections had gone wrong. During the course of that speech he made an
intriguing reference to being connected with "an NSF study" concerned with
shortages:

"In your packet you have an article on the supply and demand for
scientists and engineers that I published in Science in 1990, based on work
done in 1988. This article reported on an NSF study that I was involved in,
much like the study that Bill Bowen and a colleague at Princeton were doing at
about the same time. Bill and I were both projecting a significant future
shortfall of Ph.D.'s. Bowen was looking at the humanities and the social
sciences as well as the natural sciences and engineering. My paper was
concerned only with the natural sciences and engineering, and excluded the
social sciences. The study began with the year 1988 and projected the supply
of Ph.D.'s that would be trained in future years. That projection was made on
the assumption that a certain percent of undergraduate students would go on
for Ph.D.'s, and thus was based on the demographics of the 22-year-old
population."

What
that exact connection is not known to the author, however NSF sources have
volunteered to the author that Atkinson was one of the select PRA outsiders to
receive a copy of the internal PRA market study.

Further Irregularities

Given the voluntary self-censorship practiced
within PRA, questions are raised as to whether outside oversight was suppressed.

During the 1992 congressional oversight investigation into NSF/PRA
activities, it was alleged by members of congress that the study in question may
not have been merely a sloppy product of the Policy Research and Analysis
division (PRA) and its director Peter House, but part of a directed policy
program which necessitated the suppression of opposition, even by the internal
NSF statistics division (SRS) which reached contrary conclusions:

"...after PRA began doing its modeling work, our work [that of the
SRS statistical subdivision] was scaled back, and PRA began to interfere in
the text of the section on the science and engineering workforce in Science
& Engineering Indicators and other SRS work through the review
process. It was at this same time that former NSF director Erich Bloch was
trying to get Congress to appropriate money to revitalize science education
programs.

It worked as follows: SRS publication underwent "anonymous" review by the
Scientific, Technological and International Affairs Directorate (STIA) of
which both it and PRA were a part. However, this "anonymous" review was
usually done by PRA. After beginning the scarcity studies, PRA and Dr. House
began to force changes in Science & Engineering Indicators that weakened
our conclusions, based on past history and likely projected supply/demand
scenarios that the labor market would adjust to any spot shortages in
personnel.

For example, in 1989 I supervised the preparation of a report entitled
"National Overview of Scientific and Technical Personnel," which had a new
section on the projections based on the SRS model. The report did not project
any significant personnel shortages. Mysteriously, it was held up for a year
in STIA's "anonymous" review process. Finally, William Stewart, then SRS
director, arranged a meeting with Peter House to see what the problem was. At
that meeting, Dr. House said the problem was that the report did not support
the director's position that there would be serious personnel shortages in the
1990s."

-Statement of Joel L. Barries, Hearing Before The Subcommittee on
Investigations and Oversight of the Committee on Science, Space, and
Technology, U.S. House of Representatives, One Hundred Second Congress, April
8, 1992, pg. 404-405

Beyond the obvious ethical issues raised by
the suppression of criticism, it should be noted that the shortage projections
garnered a strong response based in part on the perception that the American
scientific establishment was governed and restrained by the scientific method.
It was simply assumed, even by many savvy members of congress, that leading
scientists and engineers were honor bound not to support or engage in political
deceptions regardless of the potential rewards such posturing might offer.
Representative Howard Wolpe made the point to Peter House at the oversight
hearing in 1992:

"Well, we're here today because of a terrible misunderstanding. I
mean, that's really the bottom line. Hundreds if not thousands, of people
believed that your study had something definitive to say about the scientific
and engineering needs of this country. Science education, immigration policy
in this country have been affected by the study and by the number that was its
product." ..

"One has the sense that the goal was to create the impression of a crisis
to lend urgency to the effort to double the NSF budget; nothing inherently
wrong with such an activity. It happens, as some people have noted, on Capitol
Hill every day. Democrats and Republicans will selectively present any set of
numbers in a different way to make their case.

But the difference here is that everyone up here is well aware of how that
game is played. We look at each other's numbers with a great deal of
skepticism, and the media shares that skepticism sometimes to a fault.

But no one expects the NSF to play that game or to take a study that has
been so severely criticized from so many quarters and to pretend as if there
is nothing wrong and to go forth with that in advancing its own agenda.

The NSF is the nation's premiere scientific agency. Everyone, including I
think most of the media, accept as a given that NSF's pronouncements are the
result of good science, really analytic kind of work.

This was not good science, this study that you produced. It has been
relentlessly criticized by labor market experts both inside and outside the
NSF. If you had performed this analysis for a member of Congress privately as
a private kind of action, initiative, you wouldn't be here today.

But you work for the National Science Foundation, and a different standard,
I think, must apply as we deal with this question."

-Howard Wolpe to Peter House, Hearing Before The Subcommittee on
Investigations and Oversight of the Committee on Science, Space, and
Technology, U.S. House of Representatives, One Hundred Second Congress, April
8, 1992, pg. 556-558

The Forgotten Stakeholders: The Knowledge Worker and Working
Scientist

Intriguingly, by including the "senior-most representatives" of
Government, University, and Industry, the GUI-roundtable believed that it had
represented the views of all relevant sectors of the science and engineering
enterprise.

"The sponsorship of the Roundtable by the National Academy of
Sciences, the National Academy of Engineering, and the Institute of Medicine
provides a neutral setting with credibility among all elements of the research
community in the three sectors. All points of view are presented in Roundtable
deliberations. The Roundtable avoids becoming a proponent for the views of any
one constituency."

This has left some working scientists
(particularly junior scientists) questioning how the concerns of working
scientists are being raised as rank and file scientists, engineers, and
knowledgeworkers are given neither access to such exclusive organizations nor
the ability to monitor such deliberations.

The choice of the National Academy as host institution is worth noting in
that it is an unusual scientific body. Critics of the Academy's government
advisory role note that the academy appears to be uncomfortable with the
scientific norms which promote openness, questioning and skepticism:

The academy traditionally has kept confidential all committee
records except final reports, stating that such secrecy was necessary to
assure ``that the results of the NAS reports are accepted universally as
apolitical, unbiased analyses of scientific issues."

In fact, in an appeal seeking to block the forced opening
of Academy proceedings on topics from nuclear waste to immigration policy, the
Academy claimed that it was vital to the national interest that the academy be
accepted as being "unquestioned" and "unbiased" in its judgments on
controversial issues:

``Those studies ... all relate to issues that have generated and
will generate important public debates, and that could create serious
political divisions,'' the appeal said. ``The ability of one institution of
unquestioned integrity to provide politically unbiased and scientifically
sophisticated analyses ... is ... a matter of national importance.''

However, as the market for junior scientists collapsed it
became clear that the families of scientists and other knowledge workers were to
be asked to shoulder the burden of advantages which had shifted to other
'stakeholders' (e.g. legislative changes in retirement, labor, and immigration
laws). It may be inferred from the GUIRR-mission statement, that this is in part
because from the viewpoint of some senior-most scientific representatives, young
scientists did not constitute a 'relevant constituency' warranting a seat at the
Roundtable or other such organizations claiming to speak on behalf of either
'science', 'higher education' or 'the Nation'.

The Roundtable is foremost a process----a process for bringing
together the diverse constituencies concerned with the research enterprise.
The ability of the Roundtable to stimulate constructive change in the system
depends on the "delicacy" and the balance with which it is able to address
issues that are typically complex, intractable, emotional, and controversial.
As such, it is an intensely personal enterprise, whose effectiveness has
depended on the ability of the Roundtable Chairman, the Council, the working
groups, and the staff to work constructively with the full range of relevant
constituency groups and individuals.

This is particularly noteworthy
when it is considered that a reading of legal history indicates that in addition
to greater per-capita funding levels, the current group of senior scientists and
engineers enjoyed far greater legal protection (e.g. labor certification) and
opportunity at the beginning of their careers. According to NSF director Neal
Lane:

"When I received my PhD some 30 years ago, the situation was very
different. We generally could choose among several tenure track positions upon
graduation.

There was also little doubt about our job security. If our work was
adequate, meaning that both the funding agencies and our students tolerated
our presence, our futures fell readily into place. Moreover, the fields were
not so crowded. You quickly knew everyone, the literature was manageable, and,
at least in my own field, there was no shortage of important, as well as
intellectually challenging research topics to choose from. None of this is
true today.

We did experience periods of slow growth and no growth in the job market,
notably in the late 1960's after passage of the Mansfield Amendment. But very
few of us ever had to play the games of postdoc roulette or get exposed to the
disease known as "adjunctivitis" that is epidemic among today's academic job
seekers."

As noted by some
observers, the current situation appears to breach the previous social contract
between junior scientists and their employers. Teitelbaum and Fechter state:

"In the past, the parsimonious stipend levels for new Ph.D.s
presented few barriers to recruitment of young people, because they reflected
an implicit bargain between faculty and students. Committed students were
willing to make financial sacrifices for a few years in exchange for the
promise of a meaningful post-training career in research. Unfortunately, the
current tight market in academic employment for science and engineering Ph.D.s
means that, for significant numbers of young scientists and. engineers, these
implicit agreements are largely honored in the breach. We are now experiencing
the costs of this failure in terms of frustrated expectations and thwarted
careers, and they are substantial. Inability to honor these agreements may
well discourage future generations of domestic talent from pursuing science
and engineering careers at the doctorate level."

Whether or not American science and high technology
industries will continue to thrive in the current turbulent environment has yet
to be determined. However, it should be noted that a few years earlier, the
waste of a generation of researchers was considered catastrophic by many of the
same voices calling for continuation of the current status quo. We take the last
word from "A Renewed Partnership", a 1986 report from the Office of Science and
Technology Policy:

"In the absence of stability and predictability, important
opportunities have been lost, scarce resources have been used inefficiently
and, most serious, some of the brightest young minds in each generation have
been lost to science and technology."

"It is important to emphasize that the most able students in mathematics,
engineering, and the natural sciences be enabled to develop their intellectual
potential and creativity. We are confident that this is in the national
interest; it is the most effective investment that any nation can make in its
future."

-"A Renewed Partnership", A Report of the White House Science Council Panel
On The Health of U.S. Colleges And Universities, to the Office of Science and
Technology Policy, Executive Office of the President, pp. 4 and
27

NOTE: Commentary and/or corrections are welcome. This represents the author's
best understanding of a complex history where data, economic analysis,
motivations, and incentives play large roles. The author regrets any
misimpressions or mis-statements. Due to data availability and the effort needed
to create new graphics, some graphs above may not be up to date with the latest
data available (or may require more explanation as to data sources). Please
contact the author if you have a request or an offering to make on such
subjects.